Potentially Significant Change to Tortious Interference Law in Georgia

Posted by Benjamin I. Fink on

When a former employee is violating a noncompete or other restrictive covenant, a former employer will often assert a claim against the new employer for tortious interference with its agreement with the former employee. As long as the restrictive covenants with which the plaintiff alleged the defendant interfered were enforceable, the Georgia courts long held that a claim for tortious interference could be asserted against a new employer for inducing or encouraging an employee to breach his agreement with his former employer. See, e.g., Carroll Anesthesia Assocs., P.C. v. AnestheCare, Inc., 234 Ga. App. 646 (1998). However, in a recent decision, the Georgia Court of Appeals may have held otherwise.

In Parnell v. Sherman & Hemstreet, Inc., 2022 WL 2070942 (Ga. App. June 9, 2022), Sherman & Hemstreet (S&H), a real estate brokerage, sued a former real estate agent for breach of certain restrictive covenants in his independent contractor agreement, including confidentiality, non-solicitation and noncompete clauses. S&H also sued his new employer, RE/MAX River Realty, for tortious interference. The trial court entered a TRO against the former agent. While the Court of Appeals reversed that decision based on the plaintiff’s failure to properly verify the complaint or the motion, the Court’s ruling with respect to RE/MAX’s motion to dismiss is of greater interest.

In its motion to dismiss, RE/MAX argued that the plaintiff’s claim for tortious interference with business relationships failed because the complaint did not allege that RE/MAX was a stranger to the agent’s agreement or underlying relationship with the plaintiff. The trial court denied the motion to dismiss. On appeal, the Court of Appeals unremarkably noted that the Georgia Supreme Court has held that “to be liable for tortious interference with business relations, one must be a stranger to the business relationship giving rise to and underpinning the contract.” However, in a somewhat surprising decision, the Court of Appeals then reversed the denial of the motion to dismiss, holding that RE/MAX was not a stranger to the agreement or to the underlying business relationship between the agent and S&H.

In support of its holding, the Court of Appeals said that, according to the complaint, RE/MAX hired the agent to perform the same or similar real estate services that he performed for S&H and they then conspired with him in his alleged contractual breaches. The Court also noted that the complaint alleged the agent communicated with and solicited S&H’s clients on behalf of RE/MAX. Therefore, the Court held, RE/MAX had a legitimate financial interest in the agent potentially violating the agreement by inducing S&H’s clients or potential clients to move their business from S&H to RE/MAX. As such, according to the Court, S&H’s complaint failed to allege any facts, much less sufficient facts, to establish that RE/MAX was a stranger to the agreement or business relationship underlying it.

While the Georgia courts have historically frowned upon claims against former employees for tortiously interfering with customer contracts or relationships when the employee worked with or received compensation from those relationships during their employment based on the stranger doctrine, to our knowledge, this is the first time that a Georgia court has held a new employer is not a stranger to the relationship or agreement between an employee and their former employer. This holding could significantly impact the claims and remedies available against new employers when an employee leaves and violates a restrictive covenant agreement.

We will continue to monitor this case to see if either side asks for a full court review or seeks review by the Georgia Supreme Court.